Question

Audio City, Inc. is developing its annual financial statements at December 31. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized below:

	Current Year			Previous Year
Balance Sheet at December 31
Cash	$	65,200		$	69,400
Accounts Receivable		15,800			21,000
Inventory		23,200			21,000
Equipment		227,000			152,000
Accumulated Depreciation–Equipment		(63,000	)		(47,000	)
	$	268,200		$	216,400
Accounts Payable	$	8,200		$	19,400
Salaries and Wages Payable		2,200			1,000
Note Payable (long-term)		61,000			77,000
Common Stock		104,000			72,000
Retained Earnings		92,800			47,000
	$	268,200		$	216,400
Income Statement
Sales Revenue	$	206,000
Cost of Goods Sold		92,000
Other Expenses		63,000
Net Income	$	51,000

Additional Data:

a.	Bought equipment for cash, $75,000.
b.	Paid $16,000 on the long-term note payable.
c.	Issued new shares of stock for $32,000 cash.
d.	Dividends of $5,200 were paid in cash.
e.	Other expenses included depreciation, $16,000; salaries and wages, $21,000; taxes, $26,000.
f.	Accounts Payable includes only inventory purchases made on credit. Because a liability relating to taxes does not exist, assume that they were fully paid in cash.

Required:

1.	Prepare the statement of cash flows for the current year ended December 31 using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Cash flow for the year ended December 31

Particulars	Notes	Amount in $
Cash flow from operating activities
Net income	(given)	51,000
Add: Taxes	(given)	26,000
Profit before taxes		77,000
Adjustments for :
Add: Depriciation		16,000
Operating porofit before working capital changes :		93,000
Adjustments for :
Add: decrease in trade receivable		5,200
Less: Increase in inventory		(2,200)
Less: decrease in account payable		(11,200)
Add: Increase in salary and wages payable		1,200
Cash generated from operating activity before taxes		86,000
Less:Taxes paid		(26,000)
Net Cash generated from operating activity (A)		60,000
Cash flow from Investing activies :
Purchase of fixed equipment		(75,000)
Net cash used in investing activities (B)		(75,000)
Cash flow from finacing activies :
New stock issued		32,000
Dividend Paid		(5,200)
Long term payable		(16,000)
Net cash from Financing activities (C)		10,800
Net decrease in cash and cash equivalents (A+B+C)		(4,200)
Add: opening balance of cash and cash equivilents	(Given)	69,400
Closing balance of cash and cash equivilents		65,200